This is the second post on the government’s consultation requesting views on whether a new regulatory model is needed for agents in the leasehold sector. The first post can be read here.

In an attempt to address the problems identified by the government, the consultation has specifically requested views on 3 issues. Any of these issues could have an impact on an agent’s business model so some action may be necessary.

Minimum entry requirements and standards

Managing or Letting agents do not currently need any qualifications. Some agents are members of a trade association such as ARLA (lettings) and ARMA (managing) but there is no government regulation. This lack of regulation can lead to inconsistencies between the different associations which can be confusing for consumers.

In Scotland, managing agents are required to pay a fee and join a government register. Prior to accepting an agent’s application, the government will consider previous convictions and any information on Companies House. A similar scheme for Letting agents will be in force from 31 January 2018. In Wales both managing and lettings agents must be licensed by Rent Smart Wales. Agents must meet certain requirements including, membership of a redress and client money protection schemes and pay a fee to obtain the license. Agents in both Scotland and Wales must adhere to a Code of Practice.

These codes of practice can set a benchmark for consumers and the level of service they should expect. It can also help with for example service charges and insurance by requiring agents to declare any commission entitlements or third-party interests.

What regulatory approach and enforcement should be put in place?

The government is interested in exploring different models or regulation and believes that they are 3 types of regulation which could work:

All agents to become members of a relevant professional body. This would require the government to approve each professional body with them all potentially operating on a single code of conduct;

As above, but with oversight from a regulatory body which would have to be established or approved by the government; or

The Government establishing or approving a new oversight body which agents are required to sign up to. Membership of a professional body would be optional but lower entry fees might apply to agents that are members of an existing body.

Once the specific regulation has been adopted enforcement will need to be adopted to ensure consumer confidence. Local authorities do have some enforcement powers against property agents but these are largely financial. Possible sanctions for failing to comply with the professional standards could range from an apology, a fine or even expulsion from the association. There is also potential for this to be tied in with the banning order powers under the Housing and Planning Act.

Empowering consumers

In addition to minimum standards and codes of practice consumers could be empowered through rights to choose and switch agents and to challenge service charges. In the leasehold market, many will cite Section 20 and even the Right to Manage as effective methods to challenge service charges. However, these methods are not without their problems. As such, the Competition and Markets Authority’s review of the Residential Property Management Services 2014 recommended that leaseholders should be given a right to request that the landlord retenders the service as well as a right to veto the landlord’s choice of agent. However, further suggestions and recommendations are sought.

Comment

It is likely that some form of regulation will be adopted which may require agents to pay membership fees and invest in training for all staff or all levels. This may substantially increase costs for agents although the pressure is bound to be felt more keenly by those agents which are not already professional body members. Agents in this position may wish to consider joining a professional body now on the basis that it is likely that these will either be approved directly or that the standards they use are likely to underlie whatever other regulator the government appoints.